What Short Sellers Like About American And Southwest Airlines
Among the major U.S.-based airline stocks, short sellers seem to find something to like in American Airlines Group Inc (NASDAQ: AAL) and Southwest Airlines Co (NYSE: LUV) between the August 14 and August 31 settlement dates. This comes even though airlines in general continue to profit from strong demand and lower fuel costs.
Short interest grew sharply in Allegiant Travel as well, and more modestly in Delta Air Lines.
On the other hand, the number of shares short in Spirit Airlines Incorporated (NASDAQ: SAVE) tumbled in the final weeks of the month. Short sellers also shied away from JetBlue Airways and United Continental.
The number of shares short in Alaska Air Group was essentially unchanged from the previous period.
Furthermore, short interest in manufacturers Boeing and Lockheed Martin grew modestly in the final weeks of the month.
Below is a quick look at how American Airlines, Spirit Airlines and Southwest Airlines have fared and what analysts expect from them.
The number of shares sold short in this Fort Worth, Texas-based airline grew almost 10 percent to about 24.85 million in the two weeks. That took back most of the decline in short interest in the previous period. Less than 4 percent of float was held short, and the days to cover slipped to about two.
American was among airline stocks expected to outperform. The company has a market capitalization of about $28 billion and a dividend yield of about 0.9 percent. The price-to-earnings ratio (P/E) ratio is less than the industry average and the return on equity is more than 124 percent.
Of the 16 analysts who follow the stock that were surveyed by Thomson/First Call, nine recommend buying shares, four of them rating the stock at Strong Buy. Their mean price target, or where analysts expect the share price to go, is more than 22 percent higher than the current share price.
As of the end of last week, the share price is down about 21 percent year to date. It retreated more than 9 percent in the two-week short interest period. The stock has underperformed competitor Delta and the broader markets but outperformed United Continental over the past six months.
This Dallas-based air transportation company saw short interest swell from around 15.41 million shares in the previous period to more than 19.91 million by the end of the month. That was about 3 percent of the float and the highest short interest year to date. The days to cover was about two.
(Note: the figures above match those reported by The Wall Street Journal and Nasdaq. A reader comments: "LUV has recently initiated an Accelerated Stock Repurchase program (ASR) through an investment bank. The bank delivered approximately 12 million shares to LUV, and reported that transaction as a short until they finish replacing those shares.")
Like some of its peers, Southwest may face labor issues. The company's market cap is more than $25 billion, and its dividend yield is about 0.8 percent. The long-term earnings per share (EPS) growth forecast is more than 23 percent, and the return on equity is more than 22 percent.
For at least three months, the consensus recommendation of analysts has been to buy Southwest shares. They see room or shares to run, as their mean price target is more than 23 percent higher than the current share price, and that target would be a new multiyear high as well.
The share price dropped more than 14 percent during the period but ended the month down about 7 percent. It has recovered 4 percent or so since then. The stock has not only underperformed competitors American and Delta over the past six months, but the Dow Jones Industrial Average too.
Short interest in this low-fare airline declined about 15 percent to more than 3.59 million shares, the smallest number of shares short since May. That represented about 5 percent of the float. At the current average daily volume, it would take more than two days to cover all short positions.
Spirit also was among the airline stocks expected to outperform. The company has a market cap near $3.5 billion. The P/E ratio is less than the industry average, and the return on equity is more than 26 percent. The operating margin is greater than the industry average.
Of the 15 analysts polled, 11 recommend buying shares, with six of them rating the stock at Strong Buy. A move to their mean price target would represent a gain of more than 37 percent for the shares. That consensus target would be a level the stock has not seen since April.
Shares tumbled about 15 percent during the period, as well as more than 3 percent since then. Year to date, it is down more than 35 percent. The stock has underperformed competitors JetBlue and Southwest over the past six months. It has underperformed the broader markets as well.
At the time of this writing, the author had no position in the mentioned equities.
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.